Economic impact of Olympic Games rarely adds up to much gold

The International Olympic Committee slapped the United States in the face twice
last month.

First, New York City lost out on its bid for the 2012 Olympics. Second, the IOC
dropped baseball and softball as Olympic sports.

It wouldn’t take a paranoid personality to think that maybe somebody out
there doesn’t like us very much.

Baseball and softball are certainly not as popular as soccer, but they are more
popular than the vast majority of Olympic sports. It was only 20 years ago when
the Olympics did not allow professionals, and now the IOC drops baseball because
it insists on professionals.

This decision, if not reversed, will hurt Caribbean nations, South Korea and Japan
more than it will hurt the United States.

As for the 2012 bid, New York Mayor Michael Bloomberg tried to put on a pretty
face at the postmortem news conference in Singapore. When asked how he felt about
the decision, Bloomberg responded: “Two or three days from now, there will
be mea culpa stories. There will be some sports professor from Smith who will
write a story, and by next week, it won’t be a story anymore. It will drift
out of the pages and it will come back, periodically.”

Mayor Michael Bloomberg’s city may be better off for losing its bid to host on 2012 Olympics.

Hmmm. I like Bloomberg and wouldn’t want to make him a liar. So, here’s
my story.

New York probably wins by losing. The evidence from past Olympic Games hardly
suggests that there’s a resounding economic gain from being the host city.

Montreal’s 1976 Olympics left the city with $2.7 billion of debt that it
is still paying off. The financing of the Moscow Olympics in 1980 is opaque.

The Los Angeles Games in 1984 left the organizing committee (LAOC) with a modest
surplus of $335 million, but the LAOC got 67 percent of the TV money and spent
little on infrastructure or new facilities. The physical legacy of the 1984 Games
is close to nil.

The Barcelona Organizing Committee in 1992 broke even, but the public debt incurred
rose to $6.1 billion.

Similarly, the Atlanta Organizing Committee in 1996 broke even, but the bottom
line there is not encouraging. An econometric study using monthly data found that
there was insignificant change in retail sales, hotel occupancy and airport traffic
during the Games. The only variable that increased was hotel rates — and
most of this money went to headquarters of chain hotels located in other cities.

Interestingly, the director of planning and budgeting of the Atlanta Games told
Holger Preuss (author of the book “The Economics of Staging the Olympics”):
“We can only give you the analyses which carry a positive image. Other analyses
remain unpublished so as not to make the population insecure.”

The Sydney Organizing Committee in 2000 also reported breaking even, but the Australian
state auditor estimated that the Games’ true long-term cost was $2.2 billion.
In part, this was because it is costing $30 million a year to operate the 90,000-seat
Olympic Stadium.

When Athens won the right to host the 2004 Games in 1997, its budget was $1.6
billion. The final public cost is estimated to be around $9 billion — over
five times the original budget. Meanwhile, most of Athens’ Olympics facilities
today are reportedly underutilized.

The Games are touted to bring in tens of thousands of tourists, and, if things
go according to the hype, to keep them coming into the indefinite future. Here,
too, the evidence isn’t rosy.

Olympic participants and visitors often chase others away. In late 2004, Athens
tourism officials were talking about a 10 percent drop in tourist visitors to
Greece in 2004.

The Utah Skier Survey found that nearly 50 percent of nonresidents would stay
away from Utah in 2002 because of the expectation of more crowds and higher prices.
A survey in Barcelona indicated that fully one-sixth of the city’s residents
planned to travel outside the city during the 1992 Olympics.

Today, much of the Games’ financing comes from the private sector. Companies
buy sponsorships, naming rights or make donations.

But companies usually have set PR and advertising budgets. If they spend money
on the Games, they won’t spend on other activities. That is, the money they
spend on the Games is not free to the host economy.

Most important, there is the question of long-term land use. Olympic facilities
can take up 15 or more acres each, often in a crowded urban setting.

The proposed West Side Olympic Stadium in New York would have occupied prime land
in the middle of Manhattan, overlooking the Hudson River. After the Olympics ended,
the stadium would have been used for 10 Jets games a year and maybe up to another
30 or 40 additional days for convention-related business.

Is this the best use of scarce and highly valuable urban real estate in a city
with a significant housing shortage?

After the Games, Olympic facilities either have to be torn down or maintained.
Operating and maintaining these facilities is expensive, especially since they
are often used only for niche activities (think, for instance, velodromes for
bicycling). Today, facilities in Salt Lake City cost millions of dollars to operate
and many are in deficit.

None of this is to say that the Olympics always have a negative economic impact.
Under the right circumstances, especially if they are held in cities without a
modern infrastructure and with proper planning, they can have a salutary impact.

It is to say, however, that there is no automatic bonanza. Sometimes politicians
and others lose sight of this because the competition for the Games itself takes
on a life of its own.

And we in the sports industry know better than most how thrilling and all-consuming
the quest for victory can be.

Andrew Zimbalist is Robert Woods Professor of Economics at Smith College.